Bill that would tax Social Security could be political minefield for N.C. GOP

By McClatchy News Service

Published: Thursday, June 20, 2013 at 08:48 AM.

“It seems like the GOP is willing to grab, with both hands, the third rail of American politics – taxing Social Security benefits,” said Michael Bitzer, a political expert at Catawba College. “While the Republicans want to fundamentally restructure the state’s tax code, this rail has too many volts of electricity, especially with AARP coming out and announcing their opposition to it.”

Senior influence

Bitzer said that the potential political implications are problematic: even though 13 percent of the state’s population is over age 65, a quarter of North Carolina voters in the recent midterm elections were seniors. “That’s a dangerous group to energize when you are in the majority and coming out with a tax plan that targets them,” he added.

Consider Conn among them. He can’t believe state lawmakers are even proposing to tweak Social Security, particularly after voting to put Republicans in power.

“I did. Lord, forgive me,” he said. “There are some things they’ve done that I do support. But this is one that just would totally wipe me out from supporting them.”

Only 14 states tax Social Security, according to the AARP’s state chapter, and most do it at different levels. The current North Carolina tax exemption is one of the most expensive. A state Department of Revenue report estimates the annual cost at $363 million.

Top Republican leaders are beginning to recognize the public’s resistance. House Speaker Thom Tillis said he opposes taxing Social Security, as does a majority of the House. “If you take a look at the other options we have, we just don’t think it’s one that needs to be on the table right now,” the Cornelius Republican said.

RALEIGH — Seven years ago, Everett Conn retired from a West Virginia school system and moved to North Carolina.

“One of the incentives for moving here is North Carolina didn’t tax Social Security when you got to that age,” he explained.

Now Conn, 66, is worried that will change. The Senate is pushing a bill to impose a state tax on some Social Security income. And like many seniors living on fixed income, Conn and his wife, Walli, are sitting at their Mooresville kitchen table wondering if they will pay more under the tax overhauls being considered in Raleigh. “I like living here, but I don’t find it a very retirement friendly state,” he said in an interview.

As Republicans continue to work behind the scenes to strike a tax deal, Social Security is one major sticking points between the House and Senate bills – and a thorny political problem.

Senate leaders, in an unusual step, sent the tax legislation tentatively approved last week back to a committee Wednesday while they negotiate with House lawmakers and Gov. Pat McCrory to find a compromise measure before the end of session.

The Senate bill puts a state tax on Social Security income for some seniors with other sources of income. The House plan doesn’t touch it. And the governor has expressed concerns about the Senate approach.

Not all of those receiving income through the federal social insurance program would see the tax. But even the possibility is raising alarms among seniors and the AARP, one of the leading opponents to the current tax overhaul efforts. The group is running advertisements and mobilizing its members to block the bill. The state Democratic Party joined the action Wednesday in a blast message to its activists.

“It seems like the GOP is willing to grab, with both hands, the third rail of American politics – taxing Social Security benefits,” said Michael Bitzer, a political expert at Catawba College. “While the Republicans want to fundamentally restructure the state’s tax code, this rail has too many volts of electricity, especially with AARP coming out and announcing their opposition to it.”

Senior influence

Bitzer said that the potential political implications are problematic: even though 13 percent of the state’s population is over age 65, a quarter of North Carolina voters in the recent midterm elections were seniors. “That’s a dangerous group to energize when you are in the majority and coming out with a tax plan that targets them,” he added.

Consider Conn among them. He can’t believe state lawmakers are even proposing to tweak Social Security, particularly after voting to put Republicans in power.

“I did. Lord, forgive me,” he said. “There are some things they’ve done that I do support. But this is one that just would totally wipe me out from supporting them.”

Only 14 states tax Social Security, according to the AARP’s state chapter, and most do it at different levels. The current North Carolina tax exemption is one of the most expensive. A state Department of Revenue report estimates the annual cost at $363 million.

Top Republican leaders are beginning to recognize the public’s resistance. House Speaker Thom Tillis said he opposes taxing Social Security, as does a majority of the House. “If you take a look at the other options we have, we just don’t think it’s one that needs to be on the table right now,” the Cornelius Republican said.

Under the Senate legislation, the state would tax Social Security income for those who also make money from outside sources, such as wages, pensions and investments. The tax would go into effect in 2014 at a flat 5.4 percent rate.

The personal income tax rate would drop to 5.25 percent in 2015. The bill would exempt from taxes the first $7,500 in income for individuals and $15,000 for joint filers.

The state Social Security tax would mirror the federal system. The federal government taxes Social Security above $25,000 for individuals and $32,000 for married couples filing jointly.

Senate leader Phil Berger, an Eden Republican and primary sponsor, said most lower income seniors could see a tax cut under his bill. He presented 10 scenarios showing individuals with total income below $33,000 and married couples below $52,000 that are likely to save money or break even, according to a legislative analysis.

Sen. Neal Hunt, a Raleigh Republican who voted for the plan, defended the Social Security tax. “If you have a large income and Social Security is part of your income ... then you may pay a little more,” he said. “But if you are low-income, moderate-income person using Social Security to live on, you’ll actually pay less.”

But how much seniors may pay or save is a matter of dispute.

The N.C. Justice Center, a leading opposition group, used economic modeling to find that some would pay more. An individual earning $25,000 from Social Security and $30,000 from a pension, such as a retired teacher, would see a $500 tax hike, according to the center’s analysis. A married couple with a similar total income – $32,000 from Social Security and $24,00 in pension – would also see a roughly $450 tax hike, it showed.

“It’s confusing,” said Alexandra Sirota, the center’s director. “We can’t make blanket statements that all seniors will see a tax cut under these plans. Depending on where your income is coming from, seniors could see a tax cut or a tax increase.”

AARP anxious

Mary Bethel, the advocacy director at the state’s AARP chapter, said her members are concerned about the Social Security tax and the broader implications of both the House and Senate tax plans. The deep revenue cuts imposed under the Republican-crafted bills could mean less state money for vital programs affecting seniors and cuts to local governments could lead to property tax increases.

“Social Security is a retirement savings vehicle and anything that is going to reduce retirement savings is bad public policy,” she said.

Norma Riffe, an 80-year-old retiree in Raleigh, said her total tax burden already makes living on her fixed income a challenge.

“I don’t think it’s fair to tax Social Security because we paid taxes on (our salary) already,” she said.

Riffe, who lives in Hunt’s district, said she also is reconsidering whether she should have voted for Republicans. “I’m not sure I did the right thing,” she said.